How do I lose my Japanese tax residency and return to my home country’s residency for tax?

[MajesticSoup]

Sorry for a confusing title. I have crypto or stocks that I wish to cash out with favorable tax conditions, which means not paying taxes in Japan but rather in my home country. When is home country tax residency re-established? Is it when the hole in my residence card is punched upon leaving? Or are there other metrics to look at?

[adamu]

Sorry I don't know. But if you have over 100M in assets, be aware that you could be subject to the exit tax when trying to change your tax residency for things like this, depending on your residency status. That means capital gains tax on the stocks - I'm not sure how it would work for crypto because that's taxed as miscellaneous income.

[Butterball]

You need to check the rules of your home country as well as any tax treaty between it & Japan. The tax treaty will lay out the rules for which country you will be considered a tax resident of, and prevent you from from being double-taxed.
The main requirement may come down to living most of the year in your home country.
Also, a tax treaty, while it should prevent double taxation, might not allow you to claim favorable tax rates on the assets you have in Japan. Are your stocks in a Japanese brokerage? Transferring them to a brokerage in your home country might mean selling them here (paying tax) and re-buying them there.

It’s worth consulting an accountant.

[Tkydon]

Sorry for a confusing title. I have crypto or stocks that I wish to cash out with favorable tax conditions, which means not paying taxes in Japan but rather in my home country. When is home country tax residency re-established? Is it when the hole in my residence card is punched upon leaving? Or are there other metrics to look at?

Are you Permanent Resident for Tax Purposes (Have been in Japan for more than 5 years in the last 10)?

If yes, then, if you wish to terminate your residence and Exit Japan you are subject to Exit Taxation.

5-262 Special Measure for Taxation on Unrealized Capital Gains of Financial Assets at the time of move from Japan.
A resident who has lived in Japan for more than 5 years in the last 10 years before moving out of Japan and has financial assets like securities with a total value of Y100M or more at the time of moving out of Japan is imposed Income Tax with Special Restoration Tax on the unrealized capital gains of the assets from July 1, 2015.
A person subject to this taxation is required to file a tax return until time of departure from Japan if a tax agent is not designated. Under certain conditions, a person subject to this taxation may be granted a tax payment grace period for 5 years or the tax will be reduced by submitting a request for correction.

https://www.nta.go.jp/english/taxes/ind ... /12004.htm

Therefore, if you decide to leave Japan and terminate your residence, you must pay Capital Gains Tax on your Global Assets marked to market on the day you leave Japan.

If you choose to leave Japan on a Re-Entry Permit, then even if you liquidate the assets while outside Japan, you will still be liable to Japan Capital Gains Tax on the liquidation.

So you cannot avoid the Tax to Japan.

What is your nationality? Which more favourable tax conditions do you refer to?

As Permanent Resident for Tax Purposes (Having been in Japan for more than 5 years in the last 10), you would immediately be taxed as a PR on Global Assets if you returned to Japan within 5 years.

Japan Capital Gains

Subject to selecting Separate Self-Assessment Taxation Method in your Kakutei Shinkoku, Capital Gains are taxed at 15% National, 0.315% Reconstruction, and 5% Residential Tax.
However, if you are not registered as being resident in any municipality in Japan on 1 Jan of the year after the Capital Gain is realised, because you are out of the country and have deregistered at the (Ku-Shi-Machi-Mura) Yakusho, than you will will avoid the 5% Residential Tax.

You will also be able to take advantage of credits for any Foreign Taxes paid on the transaction and any advantage available through tax treaties.

[MajesticSoup]

Sorry for the delayed reply

A few points of clarification:

- I'm Canadian and a permanent resident of Japan for tax purposes
- Crypto is not subject to capital gains tax, but rather it's added to my misc income. I don't believe I would be required to liquidate my crypto when leaving Japan.

> Which more favourable tax conditions do you refer to?

Let's say I have 60 mil JPY worth of crypto (I don't!), cashing out in Japan means I'm taxed at a progressive rate depending on my income, which if all goes according to plan, will continue to rise over these years.

However, if I lose tax residency and reacquire it in Canada before cashing out, I'd only owe taxes on 50% of the profits (source: https://tokentax.co/guides/crypto-taxes ... %20taxable. ), which would then be taxed as capital gains. It's extremely favourable compared to how Japan treats crypto.

I'll have to look at tax treaties. This is pretty overwhelming information.

[Tkydon]

The NTA English Page regarding the Exit Tax is totally inadequate.

The NTA Japanese Page regarding the Exit Tax is here:

https://www.nta.go.jp/taxes/shiraberu/t ... u/1478.htm

2 国外転出時課税

 国外転出時課税とは、国外転出をする時点で、1億円以上の対象資産を所有等している一定の居住者に対して、国外転出の時に、対象資産の譲渡等があったものとみなして、対象資産の含み益に対して所得税が課税される制度です。
(1) 対象者

 この制度の対象者は、次のイ及びロのいずれにも該当する方です。

イ 国外転出の時に所有等している対象資産の価額等（未決済信用取引等又は未決済デリバティブ取引については、決済をしたものとみなして算出した利益の額又は損失の額に相当する金額）の合計額が1億円以上であること。
ロ 原則として、国外転出をする日前10年以内において、国内に住所又は居所を有していた期間の合計が5年を超えていること。

(2) 対象資産

 この制度の対象資産には、有価証券(株式や投資信託など)（※）、匿名組合契約の出資の持分、未決済の信用取引・発行日取引及び未決済のデリバティブ取引(先物取引、オプション取引など)が該当します。

(※) 株式を無償又は有利な価額により取得することができる権利を表示する一定の有価証券で国内源泉所得を生ずべきものを除きます。
(3) 申告手続等

 この制度の対象となる方は、次のイ又はロの場合に応じ、それぞれその手続をする必要があります。

イ 国外転出の時までに、納税管理人の届出をした場合には、国外転出をした年分の確定申告期限までに、その年の各種所得に、この制度の適用による所得を含めて確定申告及び納税をする必要があります。
ロ 納税管理人の届出をしないで国外転出をする場合には、国外転出の時までに、その年の1月1日から国外転出の時までにおける各種所得に、この制度の適用による所得を含めて準確定申告及び納税をする必要があります。



Google Translate...

2 Taxation when moving out of the country

Taxation at the time of moving out of the country means that a certain resident who owns the target assets of 100 million yen or more at the time of moving out of the country is considered to have transferred the target assets at the time of moving out of the country. It is a system in which income tax is levied on the unrealized gains of the target assets.
(1) Target person

The target person of this system is a person who falls under any of the following a and b.

(A) Value of the target asset, etc. owned at the time of moving out of the country (For unsettled margin transactions, etc. or unsettled derivative transactions, the amount of profit or loss calculated assuming that the transaction has been settled) the total amount of is 100 million yen or more.
(B) As a general rule, the total period of having an address or residence in Japan before moving out of the country exceeds 5 years within the last 10 years

(2) Target assets

Assets covered by this system include securities (stocks, investment trusts, etc.) (*), equity interests in silent partnership contracts, unsettled margin trading / issue date trading, and unsettled derivative trading (futures trading, option trading). Etc.).

(*) Excludes certain securities that indicate the right to acquire shares free of charge or at a favorable price and that should generate domestic source income.

(3) Declaration procedure, etc.

Those who are eligible for this system are required to complete the procedures according to the following cases (a) or (b).

(A) If the taxpayer has filed a tax return by the time of moving out of the country, the tax return will be filed by the final tax return deadline for the year of moving out of the country, including the income from the application of this system. And you need to pay tax.
(B) If you move out of the country without notifying the tax administrator, the income from the application of this system will be included in the various incomes from January 1 of that year to the time of the outing by the time of the outing. It is necessary to file a semi-final tax return and pay taxes.




Therefore, if you have more than 100 million yen, you would need to contact the Tax Office and ask them if you would need to declare the Crypto Assets when you complete the Exit Procedure before leaving Japan.

The answer is probably 'Yes'.

You would not be forced to sell the Assets, but would have to Mark The Assets to Market on the day of your departure As If you had sold them on that day, and pay the taxes that would be liable if you had sold on that day.


If you only have 60 million yen in total Assets, then you won't need to complete the Exit Procedure, and you can take it all with you.

If you terminate your Residency, then you will no longer be liable for Japanese Taxes.
If you choose to return to Japan, you will be treated as A Permanent Resident For Tax Purposes when you have 5 years in Japan within the last 10 years.

[TJKansai]

Japan Capital Gains

Subject to selecting Separate Self-Assessment Taxation Method in your Kakutei Shinkoku, Capital Gains are taxed at 15% National, 0.315% Reconstruction, and 5% Residential Tax.
However, if you are not registered as being resident in any municipality in Japan on 1 Jan of the year after the Capital Gain is realised, because you are out of the country and have deregistered at the (Ku-Shi-Machi-Mura) Yakusho, than you will will avoid the 5% Residential Tax.

You will also be able to take advantage of credits for any Foreign Taxes paid on the transaction and any advantage available through tax treaties.

I myself have thought about whether it makes more sense to sell off some assets while living in another country (after retirement).

Things are pretty complicated when it comes to "resident" terminology, as it seems you can be both a resident from a national perspective but at the same time not one locally.

It sounds like you have to pay the 15% + .315% no matter what, however if you deregister your local address you can escape the 5%. The 15% would be about what the US would tag me for in any case.

I wonder what happens when people leave with the intention of returning, but then end up not coming back for some reason (marriage, found a good job, broke, dead etc). Especially with death. I imagine no one overseas would bother reporting the death of a "former resident of Japan" to the Japanese government.

[captainspoke]

There was kind of a similar thread over on japanfinance:

https://www.reddit.com/r/JapanFinance/c ... about_tax/

Also the earlier thread that's linked in the first reply.

[ozjimbo]

This is a very interesting thread, and I'm curious to understand the tax treatment vs the immigration treatment. I'm relocating toward the end of the year for personal reasons, but anticipate that at some point in the future we'll probably need to return to Japan. I'm therefore keen to keep my immigration status (permanent resident) current, which immigration have advised me I can do as long as I return once every 7 years or so to renew my residence card. Immigration and tax residency status are very different (normally), and, on the off chance that we don't return to Japan in the future, I'm very keen for my wife (Japanese citizen) and I to leverage our time out of Japan to count toward non-tax-resident status for Japan. How would that work? An assuming we don't have >JPY100m in assets, is an exit tax return even required?

[TJKansai]

This is a very interesting thread, and I'm curious to understand the tax treatment vs the immigration treatment. I'm relocating toward the end of the year for personal reasons, but anticipate that at some point in the future we'll probably need to return to Japan. I'm therefore keen to keep my immigration status (permanent resident) current, which immigration have advised me I can do as long as I return once every 7 years or so to renew my residence card. Immigration and tax residency status are very different (normally), and, on the off chance that we don't return to Japan in the future, I'm very keen for my wife (Japanese citizen) and I to leverage our time out of Japan to count toward non-tax-resident status for Japan. How would that work? An assuming we don't have >JPY100m in assets, is an exit tax return even required?

I was away for more than a year once and despite having PR I needed to have a reentry permit. Not sure, but perhaps that could have been issued once I left, or by a consulate/embassy overseas.